Nasdaq finally coming to life

Tuesday's set ups: IIX, SOX, BRCM, TXN, SYMC, FCEL, EWT, GPRO, SCON

This is a free edition of The Technical Indicator, a daily newsletter from CBS MarketWatch. For a more detailed account of the markets on a day-to-day basis -- in addition to 100 trading ideas per month -- please subscribe to The Technical Indicator. Learn more and subscribe.

U.S. retail sales fell 0.3 percent in August, marking the third monthly decline in the past five months.

Tuesday's neutral tone early follows another session of modest gains Monday. The Nasdaq rallied 16 points, while the Dow Industrials and the S&P 500 each scratched out narrow 1-point advances.

The Nasdaq's hourly chart above illustrates the magnitude of its recent rally.

Recall that at Thursday's close, the index had closed just above the May low of 1,865.

Then Friday, the Nasdaq rallied straight to the next significant technical level -- almost to the decimal. Friday's intraday high came in at 1,895.78, falling within a point of the March low at 1,896.

Monday, the index continued to follow through before topping out around its eight-month downtrend, best illustrated on the daily chart further down the page.

On a near-term basis, the Dow Industrials remains weaker than the Nasdaq.

While the Nasdaq has broken cleanly to two-week highs, the Dow has maintained a holding pattern, positioned comfortably under resistance at 10,360.

The S&P 500's near-term story falls somewhere between that on the Nasdaq and the Dow.

Note that after breaking above the August high of 1,109, the index subsequently stabilized, finding support at its 200-day moving average. In fact, it observed that area almost precisely on three separate occasions.

Then Monday, it cleared former resistance at 1,124 only to observe that area as support toward Monday's close.

So again, the S&P isn't range bound like the Dow, but it hasn't broken decisively higher like the Nasdaq either.

The S&P 500's daily chart adds perspective to its ongoing rally.

Since breaking above its 200-day moving average -- which currently holds at 1,115 -- the S&P has closely observed that area as support.

The Dow's test of its 200-day moving average -- currently at 10,280 -- has been slightly rockier, but the index has maintained that area nonetheless.

Also note that both the Dow and the S&P are positioned comfortably above their respective multi-month downtrends illustrated in green.

In recent sessions, the Nasdaq has taken out a series of important technical levels.

Recall that at Thursday's close, the Nasdaq had just edged above the May low, and its 50-day moving average.

Then Friday, it placed distance above those two areas, trading straight to the next significant resistance at the March low of 1,896.

Monday it pressed even higher, challenging that massive eight-month downtrend illustrated in green.

The bigger picture

The past three sessions have been an exercise in the Nasdaq playing "catch up" with the Dow Industrials and the S&P 500.

Since Thursday, the Dow has posted a net gain of 1 point, and the S&P 500 has added 9 points.

At the same time, the Nasdaq -- which has lagged the broader markets since January -- has carved out a net gain of 60 points, or 3.2 percent.

Now over the course of those gains, the Nasdaq has reclaimed several important technical levels. These include the May low, its 50-day moving average, the March low, and now possibly that massive eight-month downtrend.

And it's worth noting the Nasdaq's recent lift has occurred on increased, though not overwhelming, volume. The index turned 1.6 billion shares Thursday and Friday and 1.7 billion shares Monday.

So the near-term uptrend that started on Aug. 16 remains intact, and the longer-term backdrop continues to improve.

Looking ahead, the three technical levels to track fall out as follows:

The Dow's 200-day moving average at 10,280.

The S&P 500's August high at 1,109.

Nasdaq support at the May low of 1,865 which now closely matches its 50-day moving average at 1,863.

Barring a close back under those levels on increased volume, the longer-term outlook should remain favorable.

As one final point, note that a big part of the Nasdaq's recent improvement is due to the rally in semiconductors. This group was initially touched on Friday, and is revisited below. So the relative strength or weakness of that sector should tie closely to the sustainability of the Nasdaq's recent leg higher.

Tuesday's watch list

The charts below identify several names worth watching from a technical perspective. These are intended as radar screen names -- sectors or stocks that appear well positioned for a potential move in the specified direction over the near term.

Index

Symbol

Mon Close

Support

Resistance

Internet Index

IIX

148.28

147.35

151.40

The Internet Index has been a big contributor to recent strength in the Nasdaq. Over the past two sessions, the IIX has reclaimed both its 50-day moving average, and its 200-day moving average.

That 200-day moving average, currently at 147.35, sets the longer-term trend, and a sustained break above that level would suggest the beginning of a longer-term uptrend.

The three charts below illustrate sector components driving the group's rally that remain well positioned to rise: Qualcomm
QCOM, +1.22%
Yahoo
YHOO
and Research in Motion
RIMM

Index

Symbol

Mon Close

Support

Resistance

Semiconductor Index

SOX

393.10

390

396.72

After dragging the Nasdaq for months, the Semiconductor Index has turned around to drive the Nasdaq's recent break higher. Over just three sessions, the SOX has spiked 13.2 percent before finding resistance around its 50-day moving average Monday.

With the strength of this initial move, the group remains well positioned to rise. Nonetheless, a period of consolidation under that 50-day moving average is to be expected (similar to the S&P 500's initial response to its multi-month downtrend).

Over the very near-term, the question is how the index responds to that 50-day. If the consolidation remains orderly, and avoids a pronounced sell off, the favorable backdrop should be intact.

The rally occurred after a massive eight-month basing period, and occurred on strong volume, confirming its longer-term uptrend. Its longer-term outlook should remain higher barring a break back under support at the January high around $28.80.

Note that in late July, it resolved a bullish double bottom formation defined by the successful tests of its 200-day moving average in June and July. Then in mid-August, it lifted from support around $45.00 after favoring that area for two weeks.

From current levels, expect the shares to attract buyers on pullbacks to the breakout point around $50.00.

Note that Symantec, a security software company, is also an Internet Index component (illustrated above).

It recently cleared a five-month downtrend, and has since consolidated that gain, finding support at its 50-day moving average. Monday, it broke to a two-month high on increased volume, leaving it well positioned to resume the new uptrend.

Monday it edged to the high end of its range, closing precisely on the July high of $10.90. The move threatened three-month highs, and occurred on nearly three times average volume.

Company

Symbol

Mon Close

Support

Resistance

Gen-Probe

GPRO

$37.99

$36.80

$39.50

Gen-Probe
GPRO, -1.42%
reclaimed both its major moving averages Monday, leaving it well positioned to rise.

From current levels, initial support at $36.80 marks its 200-day moving average, while initial resistance holds around the bottom of the mid-July gap at $39.50.

Company

Symbol

Mon Close

Support

Resistance

Superconductor Technologies

SCON

$1.24

$1.15

$1.33

Superconductor Technologies
SCON, +0.89%
is well positioned for at least an oversold bounce, if not a full fledged uptrend.

Monday it spiked to two-month highs on its strongest volume since June. From current levels, the risk/reward can be favorable by placing a strict stop at $1.15 which approximates the high end of its former September range.

Still well positioned

The table below includes selected names recently profiled in The Technical Indicator that remain well positioned. For the full list, please subscribe to The Technical Indicator. Learn more and subscribe.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.